Agriculture Committee on June 2nd, 2009

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Thank you for your testimony.

Mr. Busby, I could spend the remainder of the meeting arguing and contradicting you. I completely disagree with your vision of supply management. I would image that this comes as no surprise to you.

I will instead turn to Mr. Clark, someone with whom we have an excellent exchange of information. I really appreciate your informing us about your work and thoughts on international trade and many other topics. I'm pleased that you're here to discuss these issues with us. I know that you have a particular interest in international trade. Earlier, you spoke about what is currently going on in Europe, etc., and you said that this could have an impact on the future free trade agreement that Canada has begun with the European Union, obviously.

Have you read the Joint Report on the EU-Canada Scoping Exercise? Usually, when Canada proceeds with free trade agreements, it conducts a broad consultation on the free trade opportunities with such a country. However, in the case of the European Union, the government set out, on paper, before conducting these consultations—at least I never heard of any taking place—the subjects that it wanted to explore. To my great surprise, this report states the following "no tariff line should be excluded a priori." The way I read this—and this is how Mr. Richard Doyle, from the Dairy Producers of Canada reads it—supply management is open for discussion during the course of these negotiations. We are trying to find out what is occurring, because this has raised a great deal of concern amongst our producers.

First of all, are you aware of this report? Have you read it? What do you think about it? Is my interpretation and that of the Dairy Producers of Canada correct in that supply management will be negotiable during the course of these discussions?

[Peter Clark]

Yes, I'm aware of the report. I'm aware of the discussions in the House and the comments and the concerns about everything being on the table. That's a pretty standard approach to negotiations at the outset—that everything's on the table. Then you talk about exclusions.

I met with the European Community's delegation at the ambassador's residence when they were in town a few months ago, and I asked them about the comprehensiveness of the negotiations from their perspective. They said they had to start that way, though they knew there would be problems with the comprehensive approach. From the European side, I would be surprised to see my clients in the pork and beef industry benefit much more than they might in the WTO—and that's not going to be very much.

With respect to supply management, they understand our concerns about it. This comprehensive approach is something that people do when they start negotiations. I can understand from the perspective of the supply managed sectors why they would be concerned about this. In every other bilateral negotiation we've had, there has been from the outset an indication that the supply managed sectors would not be on the table. They certainly would not be on the table bilaterally before there was anything resolved in the context of the WTO.

I was involved with supply management back when I was in the Department of Finance, when they were extending it to the feather industries. I was sent over to Geneva by Mr. Whelan to defend the egg quotas, with the instruction that if we didn't win I shouldn't come back. As an economist in the Department of Finance, I had concerns about supply management. Having come back from Geneva as the Canadian liaison officer with the GATT, I had some problems with the levels of imports. Later, though, I was converted, because the policy was designed to insulate farmers from fluctuations in supply. Demand is pretty stable. It's supply that's the problem, and that's what it was for.

I have a place in Florida because it's too damn cold up here for me in the wintertime now. I'm getting too old, so I go down to Florida in the winter, and there's Canadian cheese down there—the stuff from Quebec, the artisanal cheeses. They're there. They're priced better in the United States than cheeses coming in from Europe. They're priced about the same as they are here. I don't see that much difference in milk prices between the United States and Canada, and I have six kids and seven grandkids, so I know what milk prices are.

I have a bit of a problem with the OECD numbers, because they're based on various measures of world prices. The fact is that the distribution systems don't move those prices to the basic customer, and the difference in price between Canada and the United States depends very much on exchange rates.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Since you raise the topic of prices, I would really like to hear your opinion of what Mr. Busby, from the C.D. Howe Institute, and the people from the Montreal Economic Institute, are alleging, together with all the other organizations that are denigrating supply management, claiming that it poses a problem for consumers. Indeed, according to all these people, consumers would be paying a lot less for their milk were it not for supply management. Of course, if we had access to Chinese milk containing melamine, it perhaps would be less expensive, but I am not sure that consumers would wind up being the winners. I am exasperated by the fact that these people do not provide evidence. In addition, the evidence that we do have contradicts their opinion. You yourself said that, in the United States, milk is not necessarily less expensive, and that the prices fluctuate a lot more than they do here.

The C.D. Howe Institute and other organizations that attack supply management cite New Zealand and Australia as an example. However, the elimination of supply management merely allowed big operators to establish huge farms. Agricultural producers became employees or became unemployed, or went into something else. I never heard that consumers in New Zealand paid 20¢ per litre of milk. Statistics show that there are no advantages for the consumers. And yet, this is the main argument used by people who attack supply management. In Canada, we can count on stable prices. We may pay slightly more for our milk than elsewhere in the world for a certain period of time, but at other times, we have the price advantage. I would like to know what you think about this.

[Peter Clark]

I'll go back, Mr. Bellavance, to my last job in government, when I was on assignment in Montreal as head of the garment manufacturers institute. The basic problem was that we were always getting complaints that quotas on garments raised prices. When the quotas came off, the prices didn't come down, because the retailers didn't allow them to come down. There's a very good study that I can send you. It was prepared by Richard Volpe at the University of California Davis. He indicated that when prices at the farm gate change, there's not that much change at retail. Retail prices go up faster than they come down. There's much more concentration in the retail sector and the distribution sector.

I think Mr. Doyle gave you a number of slides, one of them showing that the three major Canadian processors process 70% of the milk in Canada. I think he also indicated that since 2004, the concentration at retail, the big retailers in groceries, had gone from 68% to 74%. That really tells the story.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Routledge, we'll let you present right now. I'm sorry to rush you. Mr. Atamanenko thought it might be appropriate that you be up next.

[Les Routledge, Frontier Centre for Public Policy]

Good afternoon, ladies and gentlemen. Sorry for my delay; it seems to have been the day that I went through every wrong door.

[The Chair, Conservative, Larry Miller]

It happens.

[Les Routledge]

It is with great pleasure that I meet with you here today to discuss policy in the agriculture and agrifood sector.

As all members of this committee are aware, in most provinces, agriculture and agrifood is either the largest or one of the largest sectors of industry in the province. As such, it's a key sector in contributing to the vitality of our nation and playing a role in pulling our country out of our current economic difficulties.

The issues this committee is exploring are a vital part of our charting a path to a more competitive industry and a more prosperous economy in rural Canada.

Today I am here representing the Frontier Centre, an independent, non-partisan think-tank that is based in Manitoba, Saskatchewan, and Alberta. Our goal is to foster public policy debate and stimulate economic development across the country.

We have three areas of primary focus—namely, social policy review, the open economy, and high-performance government.

My name is Les Routledge. I come from a rural background. I grew up on a farm in southwest Manitoba, and that is where I was educated. Agriculture is in my genes and in my blood.

Like many farm youth, I had to leave the farm to pursue a career in the late 1970s and early 1980s. My choice was to move into the field of engineering and later to get educated with a master's of business administration degree.

During my off-farm career I had the opportunity to start one of the leading transportation informatics companies in Saskatchewan, and later to play a role in the deregulation of the telecom, broadcasting, and information technology sectors here in Ottawa.

I have worked on assignments in all 10 provinces and territories. It's an understatement to say I've built up a lot of frequent flyer points over my lifetime, and I've put more than one car into the grave, travelling across the country. I know this country from end to end.

Today I live a changed life. I'm semi-retired and have reacquired the habit of farming. I have a farm in southwest Manitoba. I must say, I'm much happier having made that transition.

I will now turn to the terms of reference. As a starting point, I want to speak about my perception of the business of agriculture, what it is and what it's about. To me, it is about much more than providing food.

How many people in this room today are wearing a piece of clothing made of either cotton or wool? I know I am. That is just one indication.

Agriculture is also becoming more important in our energy industry through biomass, biogas, and ethanol production. For the most part, this energy is produced by crop residues or processing residues and does not reduce the level of food available to our economy.

In the future, I see great opportunities for biorefineries to be developed, where we can start seeing biochemicals and biopharmaceuticals being produced from the fruits of our land.

This committee needs to understand that the scope of the mandate, in looking at agriculture, needs to extend well beyond agrifood. We all need to think of agriculture as being part of a giant biorefinery that produces hundreds and hundreds of different types of products and services.

We should also think about how agriculture can play a role in those services, such as tourism, recreation, and preservation of our ecology and natural environment.

To put it simply, agriculture is about much more than loading up a truck and delivering a load of grain to your local elevator.

Issue number one is competition levels. When talking about competition in agriculture and agrifood value chains, it's important to realize that we live in a globally competitive environment. In order to ensure that agriculture and agrifood maintains its globally competitive stance, perhaps it is time to explore further harmonization of the regulatory standards for input products coming into our country and how we can access export markets.

Input products that are used in other countries with comparable regulatory and policy standards, such as the United States, the European Union, and Australia, in general, should be allowed into Canada.

As a country, we also need to be much more aggressive in challenging non-compliance with trade commitments by other countries. Issues such as MCOOL, carbon emissions trading, and distorting health or environmental regulations are definitely causing problems down on the farm.

The second issue is the impact of competition. The impact of competition, or lack thereof, has received a fair amount of press coverage in the last year in the agricultural sector. The price of input products soared last year, and so did the prices at the food retail level.

While some people have been calling for price regulations, we learned in the 1970s that wage and price controls were not really an effective policy tool. The more sustainable action is to turn to trade and the harmonization of trade standards with other countries to stimulate fair and open competition.

Competitive legislation can play a role in this process. For organizations that operate in mandated or natural monopolies, perhaps the government needs to examine if the current situation is in the best interests of the economy. In my previous career in the telecommunications sector, I saw the prices in that industry decline substantially once we changed the policy framework to introduce competition.

The third issue is finding solutions to improve competition. In this respect I again want to emphasize that neither I nor my organization believes direct price regulations are the answer. They didn't work in the 1970s, and we don't see any reason they should work today.

What does work is establishing a policy framework that stimulates competition among both domestic and foreign organizations. In particular, the harmonization of standards with our trading partners in both upstream and downstream sectors is a very important element. We should be able to see the full, open trade of inputs and outputs among our trading partners. Any deviation from this should be dependent upon the applicant's demonstrating a compelling policy rationale for not having open trade and commerce.

The government and industry should continue to expand efforts to liberalize trade on both a bilateral and multilateral basis, but it is perhaps more important for us to become much more aggressive on challenging non-compliance of our trading partners with existing trade agreements. The alphabet soup of BSE, MCOOL, A(H1N1), GMO, and other non-tariff trade barriers out there just befuddles you down at the farm. Canada has to become much more aggressive in challenging how other countries are using those issues to create non-tariff trade barriers.

We also need to walk the walk here in Canada. We need to recognize that every value chain exists in an ecosystem with other value chains. Maximizing choice and competition in areas such as transportation services, education and training, access to labour, housing, and energy all have important impacts.

Other solutions are that safety nets need to encourage research and innovation instead of the status quo. We need to encourage a diverse ecosystem of businesses, enterprises, and value-added chain models. We need more inbound migration to rural communities. A lot of rural tigers out there are suffering from a labour force shortage, and inbound migration is serving our interests.

The fourth issue is areas of competitive advantage. The era of Canada serving as the breadbasket of the world and exporting low-priced products is coming to an end. We have to look beyond food and fibre and the commodity export markets to materials with higher added value, particularly beyond the food and fibre sectors.

The fifth issue is regulations. Regulations provide assurance of quality and safety. Any regulation should be designed to achieve explicit and articulated public policy goals, and before new regulations are implemented, there should be a clear examination of whether alternatives to regulations can work.

The sixth and final issue is innovation. Innovation has to benefit all members of the value chain. It does not stop at the door of the research lab or with the owner of the intellectual property. We need to figure out how to stimulate rapid adoption and diffusion of innovations throughout the value chain.

I thank you.

[The Chair, Conservative, Larry Miller]

Mr. Atamanenko, you have seven minutes.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you, gentlemen, for coming and sharing your knowledge with us.

We started off the discussion with a reference to Alberta, and I would like to say, throwing my two cents' worth in, that I think here we have a province that's doing something to help cattle producers, and I think that perhaps other provinces should be following suit, as maybe should the federal government. If they're doing something and helping our folks there, that's great, and I applaud them for that.

I've been at something like 20 hearings on food sovereignty and food security across the country. One theme that's appearing over and over again is the fact that many feel we're losing control of our food supply. In other words, we're losing our food sovereignty in our nation. It seems to me that supply management is one way we can retain and are retaining control of what we're doing.

I have a statistic here. Mr. Busby, I'd like you to comment on this. In March 2008, a New Zealand study noted that the price of a two-litre container of milk in New Zealand currency was--and obviously this is an average price--in the United States, $2.53; Britain, $2.94; Australia, $3.10; New Zealand, $3.25; France, $3.43; and Canada, the only country with supply management, $2.36. That was in March 2008, based on average prices in New Zealand currency. That's the first thing. You kept referring to the fact that consumers are going to benefit if we do away with or modify the system. If in fact this statistic is correct, and it's possible that's not the case....

I do know, for example, that countries like New Zealand would just love to get into our market and flood our market with their cheap butter and milk products. So far we're able to protect one sector of our agricultural community from this. Then it comes around that, if the system is working--and there are flaws, as there are in other systems--and if it's keeping money in Canada, it's not costing the government anything, and the consumer prices are reasonably low, and we're getting good Canadian produce, in this day and age of pressure coming from the World Trade Organization and other countries to modify this system, why would we even think of trying to tamper with it? I'll ask you that question. If others would like to comment, I'd be happy to hear the comments.

[Colin Busby]

That's a fair question. I would respond very quickly to the notion of this adjusted set of prices, whether they're adjusted by exchange rates or purchasing power parity, to project the notion that essentially the price of this policy has no consequence for the consumer. I would object to that. It's textbook introductory microeconomics, essentially, that a lot of the--

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Well, you see the prices. The quotation is $2.36 compared to other prices.

[Colin Busby]

But the problems with those types of numbers, when you're comparing prices across countries--I don't know what statistics you have--is that a lot of them depend on what the price levels are in the country in general and on the exchange rate. You can have two different factors that can affect what goes into those.

What I would say in response to the second part of your question is that in the case of New Zealand and Australia, when their reforms took place, essentially there was a long-sighted view amongst policy-makers in those countries that there was going to be potential to export their goods in the future, and that they'd be better off to prepare themselves for those types of markets, increase their competitiveness within their country, and then try to export their goods, try to lobby, and try to reduce tariff barriers. That was exactly their notion.

The way I would rephrase my conclusion in a Canadian context is to say that the most important question facing the supply managed industry and the government, following what happens with the Doha development agenda, is really whether the supply managed system should merely realign with the new trade rules that come about, or whether or not more fundamental changes should be made to better position this sector for 2021 and beyond, which is when whatever happens at the Doha development agenda expires.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

I'm just going to interrupt here. You're talking about the agenda. It's my understanding that if some of those things on the table go through, according to the Dairy Farmers of Canada, each dairy producer stands to lose $70,000. Is that worthwhile doing to get some kind of agreement on the table, or should we be saying no and protecting our system as it is?

[Colin Busby]

Clearly, I think a slow phasing out of this system is what's best. Yes, as you mentioned, what's likely to come out of the Doha development agenda will have some impact on supply management. My fear is that 15 years down the road, what likely comes out of that will be even more significant. I think there's a strong argument to do more in this sector. Should we not slowly increase competitiveness within our country, because if tariff barriers fall rapidly in 2021, the consequences could be much, much more severe?

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

Mr. Clark, you mentioned the U.S. Farm Bill and you talked about the European Union. Obviously, they're not going to go away; they're here for a while.

Also, Mr. Routledge, you mentioned that we have to become more aggressive when we try to combat these things that are in place. How do we do that? You talked about debt. Here we are, with a bill that's increasing our debt, and these guys are giving money to farmers. Philosophically, should we be tying another commodity to this, or should we be tying another sector when we're negotiating for agriculture?

We're going to Washington and we're going to be talking to our counterparts there, and we'll have nice meetings and we'll let our views be known. But that program is still going to go ahead. So what's the answer to make sure that the farmers who are not in supply management make some money in our country?

[Peter Clark]

Back in 2003 we prepared a very detailed summary of subsidies to agriculture in the United States, and in New Zealand, because it's a myth that New Zealand agriculture is not subsidized. It's also a myth that Australian agriculture is not subsidized, given the extent of free irrigation they provide to their agriculture. It could wipe out our low-end wine industry, because in Australia they just have too many grapes, so they have to put them in Yellow Tail bottles.

So there are subsidies. There are subsidies in Europe; there are subsidies in the United States. They're not going to go away. We prepared a very detailed analysis of all the subsidies in the United States and of the activities of the New Zealand Dairy Board/Fonterra, and presented it to the government. It took them three years to do anything with it. The approach they took has not been terribly aggressive in pursuing this.

In the Uruguay Round, we bought and paid for better behaviour by other countries on their subsidies. That hasn't been delivered. We're at risk of paying for the same “fish” twice. We have to have a more focused, more aggressive, and more farmer friendly farm policy in Canada.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Lemieux, for seven minutes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you very much, Chair.

Thank you to our guests for being here today.

I need only a few moments to make a few comments on discussions that have gone on around the table. I want to address what Mr. Valeriote said regarding provincial versus federal programming.

Certainly, the federal government has a mandate in agriculture, but I want to say, “as do the provinces”. Oftentimes, certainly what I hear as parliamentary secretary and what I've heard as an MP for a rural riding with lots of agriculture, is that farmers don't want a one-size-fits-all type of program. They do want regional flexibility.

What I would put forward is that there is a balance here between the federal responsibilities and the provincial responsibilities. The provincial responsibilities and how they act on their initiatives actually give some regional flexibility. So in a sense, it's very hard to have a level playing field and to have regional flexibility all at the same time. So there is a tension, I would say, between local provincial endeavours and what the federal government is trying to achieve. But I also think it offers flexibility and national programming at the same time, so in a sense we have a foot in either camp.

On the supply management side, I feel supply management works extremely well. It is supported by the consumers, and I do think consumers are happy to support Canadian agriculture. Again, this is something I'm hearing across the country, that consumers want to support our farmers, they want to buy Canadian product, they want to know it's Canadian product, and they know that Canadian product is high quality and is beneficial to our society and to them. Here is a way that consumers do support agriculture, through supply management. And I do think they accept pricing where it's at. There doesn't seem to be rioting in the streets over the price of milk or the price of eggs. I think consumers are actually pleased with the way things are priced.

I think, too, supply management offers great stability, especially in difficult times. The supply management system helps mitigate risk. This is important, because when we look around the world, for example, at the collapsing milk prices, what difficult circumstance farmers of other countries have found themselves in with this collapsing milk price, yet our farmers have some stability thanks to supply management.

I'm kind of going on a little bit here, but I want to underline that. I think the stability offered by supply management helps with the future of farming. Certainly, when pork farmers are communicating with the government, they're saying they're in very difficult times. This does not attract the new and upcoming generation to take on farming when they see the turbulence in the pork market. When they see the stability in the supply managed sectors, there are young people getting involved. I'm always impressed with the young farmers involved, for example, with egg farming. It's a very young generation that is taking over the egg farms. So I think there are lots of benefits to supply management.

I want to ask Mr. Busby what your comments are on that, in terms of the advantages that supply management offers, and the impact of the stability in encouraging new farmers and youth to get involved. There will be financial challenges, it's true, but the stability actually helps mitigate the high costs that can sometimes be attached to buying into supply management farms.

[Colin Busby]

That was very well put, and I'll try to be brief in response.

Quite simply, I mentioned at the outset that a very simple economic analysis cannot answer whether it's a good policy. It can't. You're ultimately weighing benefits versus costs. And you mentioned a few other benefits that are obviously part of this--keeping robust rural communities in Canada--and there are all these other benefits that go into it. But at the end of the day they have to be weighed against the costs.

If I could turn it quickly into a question of competitiveness, essentially the consequences of it are that for these young farmers you mentioned, it is really tough to be a young farmer and get into those industries. You have to be able to come up with a lot of money and quota to get in. That turns a lot of young farmers away from the industry and a lot of the subsequent generations of farmers who are involved in the supply management industry don't really want to take it over.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

All right.

Yes, Mr. Routledge.

[Les Routledge]

I was wondering if I could add something on getting into farming, from both the Frontier Centre's perspective and my own. You mentioned young farmers. I wish people could think of it as “new farmers”. That's a better term. I'm facing every challenge a young 20-year-old person is in getting into farming. Quite frankly, I've put in over half a million dollars of pure equity to get into farming, and I'm still a very small farmer.

I'd like to make two points on supply management. First, we should be focused on ensuring that supply management can maximize the adoption and diffusion of new technologies and production techniques. Whether or not supply management is in place, out west, or at the Wheat Board, is irrelevant to me. We should be making sure that innovation and new technologies are adopted.

My second point is a little closer to home. I sell over 80% of my product directly to consumers. Why do they come to me? It's a little about quality, but it's more about the relationship. I don't know how we can do it with supply management or the Wheat Board, but somehow or other we have to respond to the desire of a significant portion of the market, of the consumers, to know where their food is coming from, to know specifically who produced it, and to be able to develop a relationship with that food. You can't develop a relationship with food you pick up at Loblaws. You can develop a relationship with food you pick up at the farmer's market or at the farm. We've heard in the news about how the combination of health and safety standards and quotas inhibit the development of that relationship. I'm not saying we should get rid of the marketing boards, but somehow or other we have to come up with a system that allows consumers the choice and flexibility to create a relationship with the food they consume.

Thank you.

[The Chair, Conservative, Larry Miller]

That was inspired.

Our time for this session has expired. I'd like to thank our witnesses for being here.

While we're changing up with new witnesses, I'd ask the members to remain at the table. We have a couple of orders of business that we have to deal with, to make good use of our time. The clerk is passing around the first one. It's the report from the subcommittee on the agenda that was asked for. We didn't get a chance at last Thursday's meeting to deal with it. The first thing on the report is the schedule. It was passed unanimously by the subcommittee and it's before you. We need to have a motion to accept it. I'd entertain a motion to adopt that report. The motion would read that the subcommittee met on May 26 to consider the business and agreed to make the following recommendations. Without reading the whole thing, I can tell you that it was supported unanimously by Mr. Eyking, Mr. Bellavance, Mr. Allen or Mr. Atamanenko, and me.

As I said, I'd entertain a motion to adopt the report as presented.

Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Can we have some time to digest this? Can we look at this and consider it before we vote on it? This is the first I've seen of it. Did it come around to the office before, or is this the first time it's been handed out?

[The Chair, Conservative, Larry Miller]

The biggest part of it did. It was just the last meeting.... Basically, for the understanding of the committee, the witnesses that we had were all passed around before now. The subcommittee decided to extend some of the meetings, including this one, to two and a half to three hours, depending on....